Business context and reporting period
This Form 10-K is for Tuscan Holdings Corp., not Microvast Holdings, Inc., for the year ended December 31, 2020. Tuscan was a blank-check company formed to complete a business combination and had no operating business or operating revenue during the period. The filing was signed March 24, 2021.
On February 1, 2021, Tuscan entered into a proposed merger with Microvast, Inc. The transaction was pending at the filing date and was subject to stockholder approval, customary closing conditions, and Tuscan having at least $250 million of available cash.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | None | None |
| Operating and formation costs | $921,665 | $778,815 |
| Interest income from trust account | $2,654,140 | $4,912,346 |
| Unrealized gain on trust-account securities | $9,750 | $128,899 |
| Provision for income taxes | $366,764 | $895,251 |
| Net income | $1,375,461 | $3,367,179 |
| Cash used in operating activities | $(705,994) | $(1,634,432) |
| Cash outside the trust account at year-end | $135,961 | $140,303 |
| Trust-account securities | $282,254,978 | $280,103,245 |
| Total liabilities | $867,172 | $296,124 |
| Convertible promissory note payable to related party | $200,000 | None |
Profitability was driven by interest and unrealized gains on trust-account investments rather than business operations. The filing does not provide meaningful operating margins because the company had no operating revenue. Non-redeemable common stock generated a net loss of $674,167, or $0.08 per share, while redeemable shares received allocated income of $0.08 per share.
Material changes versus the prior comparable period
- Net income declined 59.2% from $3.37 million to $1.38 million, primarily because trust-account interest income fell 46.0% to $2.65 million.
- Operating costs increased approximately 18.3%, from $778,815 to $921,665.
- Cash used in operating activities improved to $705,994 from $1.63 million.
- Trust-account assets increased to $282.3 million from $280.1 million, despite a $32,684 redemption payment and approximately $479,000 of interest withdrawals for taxes during 2020.
- Common stock subject to possible redemption decreased by 39,921 shares following the December 2020 extension vote, when 3,198 public shares were redeemed at approximately $10.22 per share.
Merger, outlook, risks, and unusual items
- The proposed Microvast transaction contemplated issuing 210 million closing shares, up to 20 million earnout shares, and 6,736,111 shares upon conversion of $57.5 million of Microvast bridge notes.
- A $482.5 million PIPE financing was agreed, representing 48.25 million shares at $10.00 per share. Pro forma ownership was expected to be approximately 69.9% for former Microvast equityholders and 9.2% for existing Tuscan stockholders, assuming no public-share redemptions.
- The transaction was to be accounted for as a reverse recapitalization, with Tuscan treated as the accounting acquiree and no goodwill or other intangible assets recognized.
- Tuscan’s business-combination deadline had been extended from December 7, 2020 to April 30, 2021. A preliminary proxy statement sought a further extension to July 31, 2021.
- Management and the auditor identified substantial doubt about the company’s ability to continue as a going concern through the applicable liquidation deadline because cash outside the trust account was insufficient to fund planned activities. The financial statements contain no adjustment for this uncertainty.
- The Sponsor had committed up to $1.5 million of loans by February 2021, of which $600,000 had been drawn; the Sponsor intended to convert the commitment into private units if the Microvast transaction closed.
- Nasdaq notified Tuscan that it had failed to hold a timely annual meeting. Nasdaq granted an extension through June 29, 2021, subject to conditions including periodic updates on the Microvast transaction.
- If no business combination were completed by the applicable deadline, public shares would generally be redeemed from the trust account, while warrants would expire worthless. Trust-account distributions could be reduced by creditor claims, bankruptcy proceedings, or an inability of the Sponsor to satisfy its indemnification obligations.
- COVID-19 reduced investment yields and could delay financing, due diligence, or completion of the proposed transaction. The filing states that the specific financial impact was not determinable.
Facts investors should verify
- Confirm that the relevant issuer for the requested filing is Tuscan Holdings Corp.; this 2020 Form 10-K does not report Microvast Holdings, Inc.’s operating results.
- Verify whether the proposed Microvast merger, the $482.5 million PIPE financing, and the bridge-note conversion actually closed and on what final terms.
- Review subsequent filings for the final business-combination deadline, public-share redemptions, trust-account balance, and Nasdaq compliance status.
- Assess dilution from the 210 million closing shares, potential 20 million earnout shares, 48.25 million PIPE shares, 6.736 million bridge-note shares, Sponsor units, and outstanding warrants.
- Evaluate the going-concern uncertainty, liquidity outside the trust account, related-party financing, transaction fees, and potential claims against trust-account assets.